Bitcoin Regulation

As the entire cryptocurrency ecosystem is gaining new grounds and its momentum seems to be unstoppable, governments and regulatory bodies all over the world are slowly waking up from their long hibernation. It is a fact that nobody, not even the most optimistic and visionary minds of the industry expected this paradigm shift to happen so fast, at least not at this magnitude.

Bitcoin is now one of the 30 or so largest currencies in the world. According to a 2017 study by the Cambridge Centre for Alternative Finance, the current number of unique active users of cryptocurrency wallets is estimated to be between 2.9 million and 5.8 million with between 5.8 million and 11.5 million wallets currently “active”. This is what scares governments and legislators around the globe, as they are losing, at an exponential rate, their desired monopoly over the issuance of “tokens of value” called “fiat money” guaranteed by the authority of the State and their monopoly over the right to punish and put people in prison.

Ordo ab Chao

The need for global harmonization of law and uniformization of practices has never been greater as the industry keeps moving forward at lightspeed and regulators can't even keep up with it, let alone plan.

It could be argued that creating order out of chaos is at the core of being human. But how is that acheived? How can the intangible be regulated? Cryptocurrencies are essentially just code, a protocol used to exchange information that humans deem valuable. And code ontologically is nothing but language.

The nature of cryptocurrencies poses serious regulatory challenges: they are decentralized, encrypted and recognize no state boundaries. They are not money on the Internet. They are the Internet and no government on the planet can "stop" the Internet. Just one look at the attempts to crack down on illegal P2P torrents is enough to make such a judgment. Theoretically, anyone with an Internet connection can download a wallet or mining client and connect to the bitcoin network, and regulators can't do anything about it.

Streisand effect and possible solutions to the problem

"The Streisand effect is the phenomenon whereby an attempt to hide, remove or censor a piece of information has the unintended consequence of publicizing the information more widely, usually facilitated by the Internet."

Different countries have come up with their own ideas on how to face this new Bitcoin World. Some, like Japan, have embraced the idea whose time has come and made it legal tender. Others, like Bangladesh, Bolivia, Ecuador, Kyrgyzstan, and Nepal have outright banned cryptocurrencies. Apparently, they haven't been following the "news" on the war on drugs, or the war on alcohol during the prohibition era and how that turned out.

In the USA, the EU, Canada and other developed countries, the most favourable approach so far has been to strike where the intangible becomes tangible - where digital currency meets fiat currency, namely, on the digital exchanges.

These are the central points that connect the "virtual world" and the "real world" where governments hold real power. The first step of regulation was the application of KYC (Know Your Customer) and AML (Anti Money Laundering) rules to the digital exchanges, which seems fair enough. The vast majority of the bitcoin industry was fine with sacrificing anonymity for consumer protection and safety.

It seems that both businesses and consumers agree that too little regulation will leave digital currencies vulnerable to criminal use. The effect of this criminality on consumers and the economy can already be seen through various multi-million dollar hacks on wallets and exchanges. Too much regulation, on the other hand, is likely to stifle the innovation and cause serious damage to the industry.

The future of cryptocurrency regulation remains uncertain as the brightest minds in the academic world are already working on developing legal solutions to the problems of this new emerging world.

As we move further into this uncharted territory, one thing becomes clear; Bitcoin and the whole cryptocurrency situation requires a whole new way of thinking to allow it to flourish and develop into something beautiful, and to bestow its benefits on the citizens of the Planet Earth.

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